Advisors plan to make alternatives a bigger part of their portfolios

New research from Cerulli Associates reveals that while alternatives adoption remains at an early stage among advisors, both low users and high users plan to increase their allocations by 2025, for a variety of reasons.

Increased interest

Advisors plan to grow their allocations to alts. Advisors told Cerulli that they believe practices that do not offer adequate access to alternatives will be left behind, and they are looking to increase their allocations.

Almost half of those surveyed by Cerulli are “low users” (alternatives allocation of 5% or less), while more than 20% of respondents are “high users” (alternatives allocation of more than 10%). On average, the advisors surveyed by Cerulli currently have a 9.3% allocation to alternatives and expect to increase that to 12.6% by 2025. Looking at the high users in particular, they have an average alts allocation of 22% and plan to increase that to 23% by 2025.

Resources to help

• Alternative opportunities shares our outlook for private credit, private equity, real estate, and commodities.

Multiple objectives

Advisors turn to alts for diversification, enhanced return potential. With both equity and fixed income markets declining in 2022, it may not be surprising that 78% of those surveyed by Cerulli say that portfolio diversification is a primary objective for alternatives. But there’s more to the story than just diversification. Overall, 45% of all advisors surveyed said they use alternatives to pursue enhanced return potential. Access the full study.

Resources to help

• Simplifying Private Markets explores the potential investment benefits and challenges of private equity, debt, and real estate.

Objectives vary among low users and high users. The reasons for using alternatives vary among advisors of different experience levels. As the chart below shows, portfolio diversification is a higher priority for low users, while enhanced return potential are a bigger priority for high users.

Attractive opportunities

Advisors see opportunities in private markets. Advisors said that the most attractive alternative exposures over the next 12 months are private equity (51%), real assets/infrastructure (48%), and private credit (44%). And many have plans to increase their exposure in these areas: 50% plan to increase allocations to private equity in the next two years and 39% report the same for private debt. Access the full study.

Advisors plan to fund alts allocations with new assets and cash. How will advisors fund their increased allocations into alternative investments? Newly added client assets was the top source cited (61%), followed by existing cash holdings (56%). Fixed income funds, public equity funds, and existing alternative exposures rounded out the top five. Access the full study.

Resources to help

• Explore how Invesco Real Estate leverages its rigorous investment process to uncover attractive opportunities across the real estate investment spectrum.